Rite Aid Reports Net Income of $32.8 Million and Adjusted EBITDA of $341.6 Million for Second Quarte

Rite Aid Reports Net Income of $32.8 Million and Adjusted EBITDA of $341.6 Million for Second Quarter Fiscal 2014

  • Second Quarter Net Income of $0.03 per Diluted Share, Compared to Prior Second Quarter Net Loss of $0.05 per Diluted Share
  • Second Quarter Adjusted EBITDA of $341.6 Million Compared to Adjusted EBITDA of $218.7 Million in Prior Second Quarter
  • Rite Aid Raises Fiscal 2014 Outlook

CAMP HILL, Pa.--(BUSINESS WIRE)-- Rite Aid Corporation (NYS: RAD) today reported operating results for its fiscal second quarter ended Aug. 31, 2013. The company reported revenues of $6.3 billion, net income of $32.8 million or $0.03 per diluted share, and Adjusted EBITDA of $341.6 million, or 5.4 percent of revenues.


"We posted excellent results in the second quarter, highlighted by another quarter of net income and an all-time company record for second-quarter Adjusted EBITDA," said Rite Aid Chairman and CEO John Standley. "As we continue to improve our operational and financial performance, we are also making tremendous progress in transforming our more than 4,600 stores into true neighborhood destinations for health and wellness, as indicated by our successful launch of the wellness65+ loyalty program for seniors, a strong start to our flu immunization campaign and the completion of our 1,000th wellness store remodel."

Second Quarter Summary

Revenues for the 13-week quarter were $6.3 billion versus revenues of $6.2 billion in the prior year second quarter. Revenues increased 0.8 percent primarily as a result of an increase in same store sales, which were partially offset by store closings.

Same store sales for the quarter increased 1.0 percent over the prior year 13-week period, consisting of a 1.7 percent increase in pharmacy sales, partially offset by a 0.3 percent decrease in front end sales. Pharmacy sales included an approximate 249 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores was flat over the prior year period. Prescription sales accounted for 67.9 percent of total drugstore sales, and third party prescription revenue was 97.0 percent of pharmacy sales.

Net income was $32.8 million or $0.03 per diluted share compared to last year's second quarter net loss of $38.8 million or $0.05 per diluted share. Included in net income was a $62.2 million or $0.07 per diluted share charge from a loss on debt retirement on the previously announced refinancings that were completed during the quarter, partially offset by a recovery of $23.5 million or $0.02 per diluted share related to the settlement of a prescription drug antitrust case. The improvement in net income resulted primarily from an increase in Adjusted EBITDA and a decrease in interest expense, partially offset by the loss on debt retirement.

Adjusted EBITDA (which is reconciled to net income/loss on the attached table) was $341.6 million or 5.4 percent of revenues for the second quarter compared to $218.7 million or 3.5 percent of revenues for the like period last year. The improvement in Adjusted EBITDA was largely driven by the continued benefit of new generic introductions on pharmacy gross margin as well as improved front-end gross margin, strong expense control and the settlement of the prescription drug antitrust case referenced above.

In the second quarter, the company relocated five stores and remodeled 109 stores, bringing the total number of wellness stores chainwide to 1,019. The company closed twelve stores and acquired one store, resulting in a total store count of 4,604 at the end of the second quarter.

Rite Aid Raises Earnings and Adjusted EBITDA Guidance

Rite Aid has raised its fiscal 2014 guidance for Adjusted EBITDA, net income and net income per share. Revised guidance for the fiscal year reflects the stronger-than-anticipated performance in the first half of the year and an expected stronger second half of the year versus the company's previous guidance, although the company still expects lower second-half performance as compared to the prior year. The company expects its second-half performance will be negatively impacted by continued reimbursement rate pressure, pharmaceutical cost increases and a significantly lower benefit from new generics as the vast majority of the new generic wave is included in the company's run rate.

Adjusted EBITDA (which is reconciled to net income/loss on the attached table) guidance is now expected to be between $1.240 billion and $1.300 billion and net income is now expected to be between $182.0 million or $0.18 per diluted share and $268.0 million or $0.27 per diluted share. Sales are expected to be between $25.1 billion and $25.3 billion and same store sales to range from a decrease of 0.50 percent to an increase of 0.50 percent compared to fiscal 2013. Capital expenditures are expected to be $400 million.

Conference Call Broadcast

Rite Aid will hold an analyst call at 8:30 a.m. EDT today with remarks by Rite Aid's management team. The call will be simulcast via the internet and can be accessed through the websites www.riteaid.com in the conference call section of investor information and www.StreetEvents.com. Slides related to materials discussed on the call will be available on both sites. A playback of the call will be available on both sites starting at 12 p.m. EDT today. A playback of the call will also be available by telephone beginning at 12 p.m. EDT today until 11:59 p.m. EDT on Sept. 21, 2013. The playback number is 1-855-859-2056 from within the U.S. and Canada or 1-404-537-3406 from outside the U.S. and Canada with the eight-digit reservation number 44791730.

Rite Aid is one of the nation's leading drugstore chains with 4,604 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through Rite Aid's website at www.riteaid.com.

Statements, including guidance, in this release that are not historical are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," and "will" and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our debt agreements, general economic, market and competitive conditions, our ability to improve the operating performance of our stores in accordance with our long term strategy, the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order, our ability to manage expenses and our investments in working capital, outcomes of legal and regulatory matters and changes in legislation or regulations, including healthcare reform. These and other risks, assumptions and uncertainties are described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and in other documents that we file or furnish with the Securities and Exchange Commission, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Rite Aid expressly disclaims any current intention to update publicly any forward-looking statement after the distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

See the attached table for a reconciliation of a non-GAAP financial measure, Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure. We define Adjusted EBITDA as net income (loss) excluding the impact of income taxes (and any corresponding adjustments to tax indemnification asset), interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, stock-based compensation expense, debt retirements, sale of assets and investments, revenue deferrals related to our customer loyalty program and other items.

 
 
RITE AID CORPORATION AND SUBSIDIARIES
       
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
 
August 31, 2013 March 2, 2013
ASSETS
Current assets:
Cash and cash equivalents $ 144,167 $ 129,452
Accounts receivable, net 922,648 929,476
Inventories, net of LIFO reserve of $950,241 and $915,241 3,215,611 3,154,742
Prepaid expenses and other current assets   208,607     195,377  
Total current assets 4,491,033 4,409,047
Property, plant and equipment, net 1,936,577 1,895,650
Other intangibles, net 438,776 464,404
Other assets   302,604     309,618  
Total assets $ 7,168,990   $ 7,078,719  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt and lease financing obligations $ 47,213 $ 37,311
Accounts payable 1,415,880 1,384,644
Accrued salaries, wages and other current liabilities   1,084,312     1,156,315  
Total current liabilities 2,547,405 2,578,270
Long-term debt, less current maturities 5,915,836 5,904,370
Lease financing obligations, less current maturities 88,510 91,850
Other noncurrent liabilities   935,105     963,663  
Total liabilities 9,486,856 9,538,153
 
Commitments and contingencies - -
Stockholders' deficit:
Preferred stock - Series G 1 1
Preferred stock - Series H 187,601 182,097
Common stock 916,081 904,268
Additional paid-in capital 4,280,068 4,280,831
Accumulated deficit (7,642,773 ) (7,765,262 )
Accumulated other comprehensive loss   (58,844 )   (61,369 )
Total stockholders' deficit   (2,317,866 )   (2,459,434 )
Total liabilities and stockholders' deficit $ 7,168,990   $ 7,078,719  
 
 
RITE AID CORPORATION AND SUBSIDIARIES
       
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
 
 

Thirteen weeks ended

August 31, 2013

Thirteen weeks ended

September 1, 2012

Revenues $ 6,278,165 $ 6,230,884
Costs and expenses:
Cost of goods sold 4,461,804 4,520,463
Selling, general and administrative expenses 1,602,931 1,618,169
Lease termination and impairment charges 11,390 7,783
Interest expense 106,716 129,054
Loss on debt retirements, net 62,172 -
Gain on sale of assets, net   (1,885 )   (2,954 )
 
  6,243,128     6,272,515  
 
Income (loss) before income taxes 35,037 (41,631 )
Income tax expense (benefit)   2,210     (2,866 )
Net income (loss) $ 32,827   $ (38,765 )
 
Basic and diluted earnings (loss) per share:
 
Numerator for earnings (loss) per share:
Net income (loss) $ 32,827 $ (38,765 )
Accretion of redeemable preferred stock (26 ) (26 )
Cumulative preferred stock dividends   (2,772 )   (2,612 )
Income (loss) attributable to common stockholders - basic and diluted $ 30,029   $ (41,403 )
 
 
 
Denominator:
Basic weighted average shares 901,992 889,645
Outstanding options and restricted shares   44,726     -  
 
Diluted weighted average shares   946,718     889,645  
 
Basic and diluted income (loss) per share $ 0.03 $ (0.05 )
 
 
RITE AID CORPORATION AND SUBSIDIARIES
       
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
 
 

Twenty-six weeks ended

August 31, 2013

Twenty-six weeks ended

September 1, 2012

Revenues $ 12,571,222 $ 12,699,171
Costs and expenses:
Cost of goods sold 8,933,870 9,239,979
Selling, general and administrative expenses 3,212,192 3,306,235
Lease termination and impairment charges 22,362 19,926
Interest expense 219,780 259,642
Loss on debt retirements, net 62,172 17,842
Gain on sale of assets, net   (7,065 )   (13,005 )
 
  12,443,311     12,830,619  
 
Income (loss) before income taxes 127,911 (131,448 )
Income tax expense (benefit)   5,422     (64,595 )
Net income (loss) $ 122,489   $ (66,853 )
 
Basic and diluted earnings (loss) per share:
 
Numerator for earnings (loss) per share:
Net income (loss) $ 122,489 $ (66,853 )
Accretion of redeemable preferred stock (51 ) (51 )
Cumulative preferred stock dividends   (5,504 )   (5,186 )
Income (loss) attributable to common stockholders - basic 116,934 (72,090 )
Add back - Interest on convertible notes   2,728     -  
Income (loss) attributable to common stockholders - diluted $ 119,662   $ (72,090 )
 
 
 
Denominator:
Basic weighted average shares 897,993 888,573
Outstanding options and restricted shares 40,143 -
Convertible notes   24,800     -  
 
Diluted weighted average shares   962,936     888,573  
 
Basic income (loss) per share $ 0.13 $ (0.08 )
Diluted income (loss) per share $ 0.12 $ (0.08 )
 
 
RITE AID CORPORATION AND SUBSIDIARIES
       
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(unaudited)
 
 

Thirteen weeks ended

August 31, 2013


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